Oblivionis - liquidators are not incentivized and liquidation may revert for high LTV pools

[sherlock-admin2]

Oblivionis

Medium

liquidators are not incentivized and liquidation may revert for high LTV pools

Summary

liquidators are not incentivized and liquidation may revert for high LTV pools

Vulnerability Detail

    function liquidate(
        address position,
        DebtData[] calldata debtData,
        AssetData[] calldata assetData
    ) external nonReentrant {
        riskEngine.validateLiquidation(position, debtData, assetData);

        // liquidate
        _transferAssetsToLiquidator(position, assetData);
        _repayPositionDebt(position, debtData);

        // position should be within risk thresholds after liquidation
        if (!riskEngine.isPositionHealthy(position)) revert PositionManager_HealthCheckFailed(position);
        emit Liquidation(position, msg.sender, ownerOf[position]);
    }

During the liquidation process, three limitations are guaranteed:

1. Liquidator is able to acquire no more assets than the balance of the position.
2. Liquidator is responsible for repaying some/all of the debt on the position and receives assets equal to debtRepaidValue/(1 - discount).
3. position must be healthy after liquidation.

For pools with 90% < LTV < 98%, liquidation will revert when liquidator liquidates bad debts as specified by LIQUIDATION_DISCOUNT.

    function validateLiquidation(
        address position,
        DebtData[] calldata debtData,
        AssetData[] calldata assetData
    ) external view {
        // position must breach risk thresholds before liquidation
        if (isPositionHealthy(position)) revert RiskModule_LiquidateHealthyPosition(position);

        _validateSeizedAssetValue(position, debtData, assetData, LIQUIDATION_DISCOUNT);
    }

    function _validateSeizedAssetValue(
        address position,
        DebtData[] calldata debtData,
        AssetData[] calldata assetData,
        uint256 discount
    ) internal view {
        ...
        // max asset value that can be seized by the liquidator
        uint256 maxSeizedAssetValue = debtRepaidValue.mulDiv(1e18, (1e18 - discount));
        if (assetSeizedValue > maxSeizedAssetValue) {
            revert RiskModule_SeizedTooMuch(assetSeizedValue, maxSeizedAssetValue);
        }
    }

Since there are not enough assets in the position that can satisfy assetSeizedValue, liquidation would simply fail.

To fix this issue, please refer to Morpho blue for a similar LLTV-LIF formula.

Impact

liquidators are not incentivized and liquidation may revert for high LTV pools

Code Snippet

https://github.com/sherlock-audit/2024-08-sentiment-v2/blob/main/protocol-v2/src/RiskModule.sol#L111

Tool used

Manual Review

Recommendation

Refer to Morpho blue

Duplicate of #91